Sangui "Distribution Industry Sentiment 'Gloomy'... Large Mart Sales Expected to Hit Record Low"

Q1 Retail Distribution Business Sentiment Index (RBSI) Survey
Online and Home Shopping Support... Convenience Stores Show Largest Decline

[Asia Economy Reporter Dongwoo Lee] The Retail Business Survey Index (RBSI) for the retail distribution industry slightly decreased compared to the previous quarter, with forecasts indicating that the sector will not be free from the impact of the COVID-19 pandemic in the first quarter of this year.

The Korea Chamber of Commerce and Industry announced on the 13th that the ‘2021 Q1 Retail Distribution Business Survey Index,’ conducted among 1,000 retail distribution companies, recorded an index of 84, down from 85 in Q4 of last year. An RBSI above the baseline of 100 indicates an expectation of economic improvement, while below 100 signals a forecast of economic deterioration.

Convenience Stores Show Largest Decline, Online and Home Shopping Sectors Forecasted to Improve

By business type, only the online and home shopping sectors exceeded the baseline (100) for the second consecutive quarter. Department stores (98) and supermarkets (65) showed slight increases compared to the previous quarter, but large discount stores (43) and convenience stores (61) saw significant drops in their outlooks.

Large discount stores recorded their lowest-ever forecast, dropping 11 points from the previous quarter. The spread of trends favoring nearby, small-quantity purchases, along with intensified competition from e-commerce and supermarkets, has made market conditions challenging. The Korea Chamber of Commerce and Industry analyzed that disappointment over the amendment extending operating hour regulations for five more years, passed in November last year, also contributed to the decline in expectations. Large discount stores are expected to focus on strengthening their core products, fresh foods and ready-to-eat meals, influenced by the ongoing home economy trend.

Convenience stores experienced the largest decline among business types, falling 17 points from the previous quarter. The winter season, which reduces foot traffic, is the off-season for convenience stores. Additionally, the increase in competing channels such as online shopping and delivery service platforms, along with their strategies to strengthen food and ready-to-eat product offerings, negatively impacted sales.

Department stores saw a slight increase in their outlook, approaching the baseline (100). Despite the negative factor of reduced visitor numbers due to COVID-19, expectations remained high. This was attributed to a base effect caused by a sharp rise in confirmed cases last month, which made it difficult to feel the year-end sales boost, combined with anticipation for the upcoming holiday season.

The supermarket outlook index rose by 4 points to 65. Positive factors include ongoing expectations for neighborhood-type food consumption trends amid the resurgence of COVID-19 and efforts by SSMs and individual supermarkets to strengthen delivery services. However, competition with same-day delivery providers such as online shopping and quick commerce, especially around their core product fresh foods, kept the outlook at a low level.

The only sector forecasting business improvement, online and home shopping, continued to exceed the baseline significantly due to expectations that online grocery shopping and home economy trends will persist amid COVID-19. This year, the industry plans to aggressively expand market share by strengthening live commerce and paid memberships.

Future Success Depends on Platform and Price Competitiveness Differentiation

The most critical competitive factors determining future success were identified as ‘differentiation’ (28.3%), ‘location’ (28.3%), ‘product and price’ (18.3%), and ‘platform’ (12.3%), in that order.

By business type, department stores (36.4%), online and home shopping (27.0%), and large discount stores (25.7%) most frequently cited ‘platform competitiveness’ as key, whereas convenience stores and supermarkets pointed to ‘location competitiveness’ (45.6%) and ‘product and price competitiveness’ (27.7%), respectively. ‘Differentiation competitiveness’ was ranked second across all business types.

Regarding future strategic priorities, ‘profitability improvement’ (42.6%) ranked highest, followed by ‘strengthening online-offline linkage’ (34.6%) and ‘enhancing online business’ (20.2%).

By business type, ‘strengthening online-offline linkage’ was most prominent among department stores (74.5%), large discount stores (63.9%), and supermarkets (43.2%). Convenience stores prioritized ‘profitability improvement’ (61.3%), while online and home shopping favored ‘introducing new channels’ (48.6%).

As for government support measures, ‘abolition or relaxation of distribution regulations’ (34.7%) was most frequently selected, indicating that distribution regulations are exacerbating management difficulties for distribution companies. This was followed by ‘additional disaster relief funds to stimulate consumption’ (28.9%) and ‘financial and tax support to overcome COVID-19’ (24.4%).

Seodeokho Seo, Director of the Distribution and Logistics Promotion Institute at the Korea Chamber of Commerce and Industry, stated, “A nationwide consumption stimulus policy is urgently needed due to COVID-19, and current offline distribution regulations should be reconsidered to reflect changes in the competitive landscape of the distribution industry. While the political sphere is moving toward strengthening distribution regulations, I hope they will comprehensively consider the effectiveness of these regulations, consumer welfare, and the development of the distribution industry.”

This content was produced with the assistance of AI translation services.